Although Open Innovation brings a myriad of advantages such as lower R&D costs, shared risk and shorter time-to-market, if not managed properly, it can achieve opposite results. Too much openness can lead to an exponential rise in the “organizational” costs of a firm, a non-voluntary shift from the main line of business to external activities, and most importantly – a leak of the organization’s core competencies and intellectual property to rival organizations and a loss of competitive advantage.

Open Innovation is closely tied to knowledge sharing. This is why every company needs to have a clear perception about its “core” set of knowledge, which is to be protected at all costs, and the according legal instruments to protect it. Industrial intellectual property, for instance, can be protected rather easily by enforcing the owner’s exclusive rights against any third parties who infringe it. However, the level of protection is considerably different when the valuable knowledge represents undisclosed information, protected with the tools of trade secrecy (i.e. know-how). The models for protection of such specific kinds of information against competitors vary widely in different national jurisdictions from contract and tort law to criminal law. The most conventional tools to prevent such unwanted knowledge spill-overs are mainly contractual – non-disclosure agreements and confidentiality clauses. Such agreements allow parties to exchange confidential information while at the same time ensuring that the transferred information will be maintained confidential and undisclosed to any third parties and will not enter the public domain.